By Daniel Wiessner and Brendan Pierson
(Reuters) -California's top state court on Thursday upheld a measure approved by voters allowing app-based services such as Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) to consider drivers in the most populous U.S. state as independent contractors rather than as employees entitled to greater benefits.
The ruling by the California Supreme Court is a major victory for the ride-hailing industry, which has said that many companies would end or limit service in the state if they were forced to treat thousands of drivers as their employees.
The court dismissed a lawsuit by the Service Employees International Union (SEIU) and four drivers who say the 2020 ballot measure known as Proposition 22, which preserves drivers' contractor status while granting them some benefits, was unconstitutional.
Uber in a statement said that the ruling upheld "the will of the nearly 10 million Californians who voted to deliver historic benefits and protections to drivers, while protecting their independence."
SEIU California Executive Director Tia Orr said the union was disappointed by the ruling, but that rideshare drivers could continue to fight for their rights by seeking to unionize.
"Gig workers are determined to ensure fairness in the gig economy and won’t stop fighting to win greater workplace rights and protections on the job," she said.
Whether gig workers should be treated as employees or contractors is a crucial issue for the ride-service industry. Employees are entitled to minimum wage, overtime pay, reimbursements for expenses and other protections that do not extend to independent contractors, who can cost companies up to 30% less, according to several studies.
Uber, Lyft and other app-based services spent more than $200 million on a campaign to pass Prop 22, which they say allows drivers to continue earning money while enjoying the flexibility of part-time gig work.
Passed in November 2020 by nearly 60% of voters in California, Prop 22 allows app-based transportation services to classify drivers as independent contractors if they are paid at least 120% of the minimum wage while passengers are in the car and receive expense reimbursements and subsidies to pay for health insurance.
A state appeals court last year rejected SEIU's argument that Prop 22 improperly limited the legislature's exclusive power to regulate the state's workers' compensation system by barring app-based drivers from receiving those benefits, which are only granted to employees. The California Supreme Court on Thursday agreed.
California is just one front in a nationwide legal battle over the classification of gig drivers and other contract workers.
Minnesota lawmakers passed a measure in May that would set a minimum wage of $1.28 per mile and 31 cents per minute for gig drivers, replacing a higher minimum adopted by Minneapolis that spurred Uber and Lyft to threaten to cease operating in the city.
In June, Uber and Lyft agreed to adopt a $32.50 hourly minimum wage for drivers in Massachusetts and pay $175 million to settle a lawsuit by the state claiming they improperly treated drivers as independent contractors. A proposal that would allow app-based drivers to unionize will go before voters in the state in November.